Dividend accumulation between ex-div dates

frosty77

Hi,

Does anyone know if the dividend which is baked into the fund price of a unit trust/oeic between ex-div dates is accrued linearly day by day? The fund I’m looking at is a world tracker (HSBC World Index), and pays dividends on a yearly basis. If you buy and sell between ex dividends you wouldn’t receive a dividend payout (on inc units), but wanted to clarify if you would receive your fair portion of the dividend for the time you held the fund (which you would if it was accrued linearly).

Many thanks,

Richard 

eskbanker

No, dividends are essentially binary rather than linear, so you get all of it if you hold the product on the relevant date but none of it if you don't....

frosty77

But for a fund the dividend gets baked into the fund between ex div dates, and on the ex div date the price of the ‘inc’ version drops by the dividend, when compared to the ‘Acc’ dividend. So the question is between this ex div date and the previous one does the dividend within the fund price accrue linearly.

eskbanker

frosty77 said:

But for a fund the dividend gets baked into the fund between ex div dates, and on the ex div date the price of the ‘inc’ version drops by the dividend, when compared to the ‘Acc’ dividend. So the question is between this ex div date and the previous one does the dividend within the fund price accrue linearly.

There isn't really a separately-identifiable dividend within the fund price as such though - dividends from underlying holdings will effectively add to the fund value throughout the year but not literally linearly as such.

ColdIron

The fund will receive the dividends from the underlying companies in dribs and drabs as they are paid out by them. Many will be quarterly but also monthly, biannually and annually. Also Payment Dates tend to be the last working day of the month so it won't be linear on a day to day basis, rather it would be lumpy. However you will 'receive your fair portion of the dividend for the time you held the fund' as any dividends received will increase the unit price and therefore the value of the fund (ignoring market movements)

Obviously if you held the fund for a very short period where no dividends were accrued you won't get any dividend benefit and they won't influence the unit price

frosty77

Thanks guys. So it seems from what you are saying there is no ‘smoothing’ process applied with the dividends, rather when the fund manager receives the dividend from the companies within held within the tracker they get added to the fund price, so it is going to by lumpy between ex div dates. You could sell on one day, but if you sold on the next you may have got more dividend within the fund price (though you’ll never know). I also wondered if you bought just after one ex div date, and sold just before the next you could bake in a full year dividends in the fund price (assuming yearly payout), and not receive a dividend payment as such for tax purposes. If you wanted to trade off a dividend payment for a more capital gains it could be interesting (perhaps more academically than in practice)

coastline

frosty77 said:

But for a fund the dividend gets baked into the fund between ex div dates, and on the ex div date the price of the ‘inc’ version drops by the dividend, when compared to the ‘Acc’ dividend. So the question is between this ex div date and the previous one does the dividend within the fund price accrue linearly.

Here's an example with the FTSE100 and the ishares ETF FTSE 100 tracker ( ISF ) which is a distribution fund. Earlier this month ISF the orange line on the chart is clearly above the FTSE 100 index . ISF goes EX DIV on the 15th of DEC.

FTSE 100 Index, UK:UKX Advanced Chart - (FTSE UK) UK:UKX, FTSE 100 Index Stock Price - BigCharts.com (marketwatch.com)

BlackRock iShares Core FTSE 100 UCITS ETF GBP (Dist) (ISF) Dividends (dividendmax.com)